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Things That Can Hurt Your Business Credit Score

Having access to credit can be a lifeline for your small business, yet many business owners have trouble accessing credit due to their business credit score. According to the Federal Reserve Banks 2020 Small Business Credit Survey,1 36% of companies who have trouble accessing loans and credit lines were denied due to a low credit score.

Many small business owners aren't aware they have a business credit score.2 Yet lenders and vendors -- and even potential partners -- may be using your business credit score to decide whether to work with you.

Business credit scores may be used by:

  • Lenders or credit card companies assessing your creditworthiness before approving you for a loan or line of credit.
  • Vendors considering you for a net-30 account, which gives you 30 days to pay your bill after purchasing products from them.
  • Potential customers and other companies to determine whether your business is financially sound before entering into a partnership or contract.
  • Insurance companies deciding whether they want to insure your company and how much to charge.
  • Investors who want to evaluate your company before providing funding.

Here are four things you may be doing that damage your business credit score.

 

1. Ignoring it

It's not unheard of for a business credit report to include accounts that belong to another company, incorrect information about how long you've been in business, and even the industry in which you operate.

Errors like these can lower your business credit score, so it's important to check your business credit report at least once per year.3 You can order your report from each of the three major credit reporting agencies at:

If you find any errors, each agency has a dispute resolution process you can follow to request a correction. Here's where you can find those instructions:

 

2. Applying for credit too often

When you apply for a credit card or loan and the potential lender or creditor checks your credit report, a hard inquiry appears on your credit report.

One inquiry typically has little impact on your business credit score. Hard inquiries show that you intend to take on new debt, so several inquiries within a few months can negatively impact your score.

However, credit rating bureaus understand that it's natural for consumers to rate shop, so multiple inquiries of the same type within a week or two won't impact your credit score.

Credit card icon
Maxing out your business credit card — even if you pay off your balance in full each month — can harm your business credit score.

 

3. Maxing out your business credit card

Some business credit scoring models take into account your credit utilization rate, or the amount of credit in use divided by the total credit you have available. For example, if you have a business credit card with a $1,000 limit and a $500 balance, your credit utilization rate is 50%.

If you max out your business credit card, your credit utilization rate will be high – even if you pay the balance in full each month. That can hurt your business credit score.

Credit bureaus favor businesses that keep their utilization ratio under 30%,10 so avoid charging more than that percentage of your card's credit limit. You can also ask if your bank will raise the credit limit on your business credit card.

 

4. Missing payments

One of the key factors that influences your business credit score is payment history. If you fail to make on-time payments to lenders, credit card companies, or suppliers, and those late payments are reported to one or more of the credit rating bureaus, your score will go down.

Even accounts that aren't reported to the credit bureaus can impact your business credit score if they go into collection or result in a lien.

Derogatory public records — such as collections, liens, judgments, and bankruptcies — also appear on your business credit report and remain there for anywhere from 36 months to nearly ten years.11 Try to avoid having these show up on your report by paying utilities, suppliers, creditors, and tax agencies on time, every time.

Having a healthy business credit score provides opportunities that aren't available to businesses with poor credit profiles. Take control of your credit by reviewing your business credit report regularly and managing it responsibly. Then you'll have an easier time accessing new credit when you need it.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Federal Reserve Banks, “2020 Small Business Credit Survey," accessed January 11, 2021. Back
  2. Kimberly Rotter and Chris Kissell, “The Basics of Business Credit Scores," U.S News & World Report. Published March 23, 2020, accessed January 11, 2021. Back
  3. SCORE, “Understanding the Three Major Business Credit Bureaus ," published October 26, 2020, accessed January 11, 2021. Back
  4. Dun & Bradstreet, "CreditSignal," accessed January 14, 2021. Back
  5. Equifax, "Business Credit Report for Small Business," accessed January 14, 2021. Back
  6. Experian, "Do You Know Your Business Credit Score?" accessed January 14, 2021. Back
  7. Dun & Bradstreet, "Service & Support," accessed January 14, 2021. Back
  8. Equifax, "Small Business FAQs," accessed January 14, 2021. Back
  9. Experian, "Correcting Business Credit Report Information," accessed January 14, 2021. Back
  10. Serenity Gibbons, “What Every Business Owner Should Know About Credit Utilization," Forbes. Published February 11, 2020, accessed January 11, 2021. Back
  11. Experian, “How Long Data Stays on a Business Credit Report," accessed January 11, 2021. Back